Boats Rose in New Orleans, but Not for the Poor

In New Orleans, these were people living check-to-check in crummy, racially segregated neighborhoods, with no car or access to transportation, suffering all manner of physical infirmities, lacking the information and connections and life experiences that might have landed them somewhere other than the hellish Superdome. And among them were a handful of young men so soaked in social pathology that their response to suffering around them was to rape and pillage and shoot at those who came to rescue.

So powerful were these stories and these images that even the Republican leadership in Congress understood it would have been unseemly to push ahead with tax cuts that would benefit the rich.

In their hearts of hearts, of course, Republicans draw no connection between tax cuts and income inequality. For if you are secure in your knowledge that a rising tide raises all boats and that every American has the opportunity to grow up to be an owner of the Texas Rangers, you know that growth-enhancing tax cuts will be good for all Americans.

Only one problem: It's not true.

For reasons that are not exactly clear, the boats no longer are all rising like they used to. Despite four years of economic growth, driven by impressive productivity gains, the average worker is no better off than he was in 1997.

Late last month, the government reported that inflation-adjusted income for the median household fell for the fifth year running. During the same five-year period of recession and recovery, the number and percentage of households in poverty has also risen.

So where have the benefits from economic growth gone?

Some have gone to the top 20 percent of households in the form of higher salaries and bonuses. This is the only class that has seen its income rise.

The rest of the benefits have gone to those who own stocks, bonds and real estate -- for the most part, the same 20 percent. Normally, the share of national income going to holders of capital declines during the later stages of an expansion. But four years into the recovery, capital's share of national income is still rising, and at 17.7 percent remains near the top of its historical range.

It wasn't always this way. The period from World War II to the mid-1970s was characterized by rising income equality. But the steady reversal since then suggests that the forces that are combining to make labor, product and capital markets more efficient are also making incomes less equal. They are part and parcel of the same structural changes.

It is unclear whether we as a society find that morally unacceptable. If we do, we will have to accept slower economic growth and more aggressive redistribution of income through government tax and benefit and regulatory systems. There is no realistic high-growth, low-inequality solution.

The other thing to remember is that, over time, inequality breeds more inequality. New research shows rags to riches may be more myth than reality in America. In a book titled "Unequal Chances," the liberal-minded Russell Sage Foundation has gathered a dozen scholarly essays that lay out a strong correlation between the income of parents and their children.

The mechanisms are both genetic and environmental. The genetic influences include not only IQ, which turns out to be relatively insignificant, but inherited traits like stature, looks, health and an optimistic outlook. And among the cultural and environmental factors, monetary inheritance turns out to be less significant than educational quality, connections, social graces, marrying well, work ethic and an appetite for risk.

Importantly, the lack of intergenerational mobility is strongest at the bottom and top.

A child born in the top 10 percent of households, as measured by income, has a 30 percent chance of ending up there -- and a 43 percent chance of attaining the top 20 percent. His probability of ending up in the lowest 20 percent is only 3.5 percent.

By contrast, a child in the poorest 10 percent of households has only a 1.3 percent chance of getting to the top decile, and a mere 4.3 percent chance of attaining the 20 percent. There's about an even chance he'll wind up in the bottom 20 percent, which is effectively in poverty. If he's black, the odds are even higher.

It's unlikely Barbara Bush was aware of any these sobering statistics before her visit with the "underprivileged" at the Houston Astrodome. But in her ham-handed way, she has shined some needed light on the depth of poverty in urban America and the difficulty of escaping it.

Steven Pearlstein will host a web discussion today at 11 a.m. at washingtonpost.com. He can be reached atpearlsteins@washpost.com.